2011 (1) TMI 1570 - HC - Indian Laws

Summary

Issues Involved:
1. Legality of IFCI's action of selling/assigning its financial assets/debts concerning HRML.
2. HRML's right to match the highest bid received by IFCI.
3. Alleged breach of duty by IFCI as Operating Agency (OA) under SICA.
4. Allegations of mala fides against KMBL.
5. Contempt of court by IFCI and KMBL for violating the status quo order.

Detailed Analysis:

1. Legality of IFCI's Action of Selling/Assigning Financial Assets/Debts:
The court examined whether IFCI's action of selling/assigning its financial assets concerning HRML was lawful. HRML challenged IFCI's decision to sell its debts to KMBL, arguing that it violated the principles of natural justice and hindered the revival of HRML under SICA. However, the court found that IFCI acted within its rights under the Reserve Bank of India (RBI) guidelines, which permit the sale of non-performing assets (NPAs) to financial institutions. The court referenced the precedent set in *Haryana Steel & Alloys Ltd. v. IFCI Ltd.*, which upheld the legality of such sales, emphasizing that the assets sold belonged to IFCI, not the borrower, and IFCI was entitled to deal with them to resolve its NPAs.

2. HRML's Right to Match the Highest Bid:
HRML claimed it had offered to pay 5% more than the highest bid received by IFCI and should have been given an opportunity to match the bid. The court noted that HRML's offer was made at the last minute and did not provide sufficient assurance of payment. IFCI's decision to proceed with KMBL's bid, which was already in process, was deemed commercially prudent. The court highlighted that HRML had a history of default and had not demonstrated its ability to honor its proposal, making IFCI's decision reasonable.

3. Alleged Breach of Duty by IFCI as Operating Agency (OA) under SICA:
HRML argued that IFCI, as the OA appointed by BIFR, breached its duty by selling the financial assets instead of focusing on HRML's revival. The court found that the role of IFCI as a lender was distinct from its role as an OA. The court emphasized that any grievances regarding IFCI's conduct as an OA should be addressed before BIFR, which had appointed IFCI. The court held that the appointment of IFCI as OA did not preclude it from exercising its rights to sell NPAs under RBI guidelines.

4. Allegations of Mala Fides Against KMBL:
HRML alleged that KMBL acted in bad faith by bidding for IFCI's financial assets concerning HRML while simultaneously negotiating with HRML for funding its rehabilitation proposal. The court found no basis for these allegations in the pleadings. The court noted that HRML was aware of KMBL's participation in the auction process and had not provided any evidence of confidential information being misused by KMBL. The court dismissed the allegations of mala fides as unfounded.

5. Contempt of Court by IFCI and KMBL for Violating the Status Quo Order:
HRML filed a contempt case against IFCI and KMBL, alleging that they violated the court's status quo order by completing the payment for the bid. The court found that HRML had not sought any interim relief to restrain IFCI from receiving payments from the highest bidder. The court concluded that the payment made by KMBL did not violate the status quo order, as it was placed in a "No Lien Account" subject to refund if the petition was allowed. The court dismissed the contempt case, finding no contempt committed by IFCI or KMBL.

Conclusion:
The court dismissed HRML's petition, finding no merit in its claims against IFCI and KMBL. The court upheld the legality of IFCI's sale of financial assets to KMBL, rejected HRML's right to match the highest bid, and found no breach of duty by IFCI as OA. The allegations of mala fides against KMBL were dismissed, and the contempt case was found to be without basis. The court ordered HRML to pay costs to IFCI and KMBL.